The passing of accounts refers to the formal process by which a personal representative, whether Estate Trustee, Trustee, Attorney or Guardian collectively referred to herein as a “Trustee”, presents the estate or trust accounts in the court approved format to the beneficiaries and the court.
Rules 74.17 and 74.18 of the Ontario Rules of Civil Procedure establishes the framework for a passing of accounts:
- Once the accounts are presented, the Trustee seeks the approval of the court over the relevant period of administration.
- A Trustee may be required or compelled to pass their accounts or may choose to do so voluntarily.
- When a passing is required, most often it is at the instance of a beneficiary1.
- On occasion, it is recommended that a Trustee initiates the process voluntarily out of the desire to obtain a judgment approving his or her administration of the estate, in general, and the claim for compensation, in particular which is otherwise unascertainable.
- This is commonly the case when a beneficiary is a minor, is incapable of managing his or her affairs and there is no person with the authority to execute a release, such as an attorney under a continuing power of attorney or a guardian of property, there is a missing beneficiary, or there is the potential for unborn beneficiaries to inherit in the future i.e. a gift over to issue in a trust before the beneficiary becomes fully entitled.
What if the beneficiary is a minor, incapable, or missing?
In cases where there is a beneficiary who is a minor, incapable, missing or unascertained a Trustee is unable to obtain a validly signed Release.
Notwithstanding that the Office of the Children’s Lawyer represents the interests of minors with respect to estate matters, and the Office of the Public Guardian and Trustee represents the interests of incapable or missing adults, it is the practice of those respective offices to not sign a Release on behalf of a beneficiary but to request the Trustee to pass their accounts.
Without the court approval of the accounts, a minor beneficiary is entitled to question the Trustee’s administration once they turn the age of majority, or up to two (2) years’ thereafter.
A judgment on a passing of accounts is the best protection for a Trustee, and sometimes it is the only form of protection when a beneficiary refuses to or is unable to sign a Release.
What happens after the accounts are presented?
Once presented, the accounts will either be passed by the court in the form presented, passed in a revised form as amended by a court Order, or not at all if the court is not satisfied with the accounts or the information reflected therein.
The exercise of going through a passing of accounts can be enlightening for a Trustee. It forces a Trustee to consider their administration of the estate or trust in a very specific light, given that their actions will be under close scrutiny.
It is for this reason that a Trustee should be made aware very early on of the potential that they will be required to pass their accounts and what the process entails.
What do I need to know about Passing Accounts?
- Through the process of passing accounts, the beneficiaries are forced to address any issues or concerns and act (rather quickly) upon such concerns by filing a notice of objection to the accounts with the court.
- If no notices of objection are filed, the court will likely approve of the accounts as presented and the Trustee is relieved of all liability for their acts within the period of time the accounts represent.
- Once a Trustee obtains a judgment passing the accounts the Trustee, with few exceptions2, is discharged of any further accounting to the beneficiaries for the period of time covered by the accounts.
- Accordingly, when the minor beneficiary becomes of age, a missing beneficiary is located or when the incapable beneficiary passes away and a personal representative is appointed to represent their estate, having obtained a judgment on a passing of accounts restricts the beneficiary or their estate from questioning a Trustee’s administration.
What’s the benefit of passing accounts?
A passing of accounts provides overall protection to Trustees and beneficiaries alike:
- For the beneficiaries, a passing of accounts provides an update of the status of the administration as the accounts clearly state all unrealized assets and unpaid obligations of the estate.
- The beneficiaries are entitled to obtain legal advice to review the accounts and advise them with respect to same.
- To encourage beneficiaries to take such initiative, the estate will pay half the amount a Trustee is entitled to as referenced in Tariff C of the Rules to each beneficiary retaining their own lawyer to review the accounts who either does not file a notice of objection, or files a notice of objection which is removed prior to the court date and serves and files a request for costs3.
- A formal passing of the accounts can provide assurances to the beneficiaries that a Trustee is administering the estate in an appropriate manner.
How much does it cost?
The cost associated with a passing of a Trustee’s accounts varies depending on the size of the estate or trust and whether the matter proceeds on a contested or uncontested basis.
For an uncontested passing of accounts the cost is mandated by Tariff C of the Rules and ranges between $2,500.00 for an estate or trust with less than $300,000.00 in receipts to $7,500.00 for an estate or trust with $3,000,000.00 or more in receipts4.
However, if notices of objections to the accounts are filed and the matter proceeds on a contested basis, the Tariff C costs no longer apply and the general rules with respect to costs are applicable.
Whether a passing is likely to be contested or not, with the comfort and protection afforded by obtaining a judgment passing a Trustee’s accounts, all Trustees should give serious consideration to presenting their accounts to the court for approval.
Thank you to Sarah Shipley of Jenkins’s Newman for this article.
Continue Learning Here:
1 Compensation & Duties of Estates Trustees, Guardians & Attorneys, Jennifer J. Jenkins and H. Mark Scott
2 see Widdifield on Executors and Trustees, 6th Ed. 14.9 Effect of Order – Mistake or Fraud
3 The Office of the Children’s Lawyer or Office of the Public Guardian and Trustee is also entitled to receive ¾ of the amount payable to a Trustee for reviewing the accounts on behalf of a minor, a missing or incapable beneficiary.
4 Due to recent amendments, the Tariff C costs have increased from a range of $800 to $5,000 to $2,500 to $7,500.